Competition law enforcement in labour markets: what does it mean for HR and legal departments?

There is no surprise that labour markets and employer/employee relationships attract the interest of competition lawyers and regulators. Discussions centre around wage-fixing and no-poach agreements, which in May 2024 were condemned by the European Commission as “by-object” restrictions by Art. 101(1) TFEU. A similar stance was adopted by the U.S. Federal Trade Commission that issued a rule prohibiting the use of non-compete clauses in relation to workers a month earlier.  However, the U.S. rule is currently disputed.

This matter is essential for consultancy and outsourcing businesses whose main resources are qualified professionals and their unique capabilities. However, employers in other industries should also pay close attention to these developments.

Action points for companies

Below we set out the action points enabling companies to assess the risks and revise their practices. Further, we outline where possible anti-competitive conduct in labour markets may exist.

• [No-poach and non-solicitation clauses]: Companies should review no-poach or non-solicitation clauses in their most common contracts.
  
  The question is not whether such clauses are enforceable - though this remains problematic too - but rather whether similar practices are in breach of competition law and carry the risk of fines (possibly material) imposed by the regulators.
  
  Therefore, businesses should analyse whether such clauses are permitted under the competition laws, as ancillary restraints or under the de minimis exception (see our Bird & Bird article here). 
  
  
• [Non-competes with individuals cooperating with the business]: Companies should review their non-compete requirements in B2B contracts as the risks of viewing them as a breach of competition rules are increasing now. In terms of employee non-competes, these remain legal in Poland (if the statutory conditions are met). However, the general discussion initiated in the U.S. on legal employee non-competes should be closely observed.
  
  
• [Arrangements with competitors]: Non-competes, wage-fixing, no-hiring, no-poach or non-solicitation arrangements with competitors, including in the transactional context, should be analysed from the competition law perspective. The need for careful assessment is growing.

The three deadly sins of competition law

Labour, like all other inputs (raw materials, energy, utilities, etc.), is subject to the law of supply-and-demand. Consequently, competition between sellers and buyers with an interest in labour is protected.

Competition law condemns three types of conduct that are considered to pose the gravest threats to a market economy:

1. Price-fixing. Antitrust enforcement commonly targets secret cartels by means of which competitors agree to inflate prices.
   
   That logic applies to purchase prices and - in the case of workers - salaries or similar forms of remuneration. Competition law prohibits arrangements aimed at fixing employee remuneration levels (wage-fixing agreements).
   
   Recent antitrust investigations into wage-fixing have focussed on professional athletes. The competition authorities have been investigating inter-club agreements on the remuneration of basketball league players in Poland (a fine of almost PLN 1 million) and Lithuania (a fine of over EUR 40 thousand fine annulled on appeal). In Poland, a similar probe has also been launched against the speedway association and the speedway league (a fine of PLN 5.2 million). 
   
   
2. Market sharing. Attempts by competitors to segment the market can harm the economy, as customers in specific categories or territories may miss out on better offers from competitors.
   
   Similarly, no-poach agreements also prevent companies from approaching specific employees.
   
   Apart from professional sports, where such conduct is being investigated (e.g. arrangements in the Portuguese football league and among clubs resulting in a fine of EUR 11.3 million in total), notable examples of antitrust probes into no-poach agreements include the U.S. High-Tech Employee Antitrust Litigation, whereby Silicon Valley companies undertook in relation to each other to refrain from cold-calling each other’s IT employees. The European Commission is also investigating, among other things, no-poach arrangements among online food delivery companies. 
   
   
3. Output limitation. A higher volume of output for goods or services usually leads to lower prices. Thus, initiatives aimed at capping output, investment or development are targeted by competition law as well.
   
   In the labour market field, the European Commission has condemned the eligibility rules of the International Skating Union prohibiting skaters from participating in tournaments not authorised by the sports association.  The prohibition has led to a smaller number of events in which professional ice skaters can compete.

Conduct of this kind can take the form of agreements. However, under competition law, the “agreement” notion is very broad and does not require explicit arrangements between parties.

The notion of “agreement” includes the exchange of commercially sensitive information, such as future prices, volumes, investments, business plans, etc. The disclosure of such information may diminish uncertainty, the essence of market competition, as to the behaviour of a competitor. In labour markets, such uncertainty may be diminished by exchanging information pertaining to individual salaries, recruitment/lay-off plans or employment structures that is not publicly known.

Not all talents are equal

Competition law applies to businesses. Therefore, B2B contracts fall under Art. 101 TFEU and national competition laws. Individuals operating under B2B contracts are “undertakings” under competition law even though their situation is comparable to that of workers.  However, employees cannot be considered “undertakings”. Consequently, employment contracts cannot be the subject of antitrust scrutiny even if they contain anticompetitive clauses such as post-contract non-competes.

Furthermore, neither EU nor national competition law may prohibit anticompetitive arrangements if those are inserted in contracts with non-economic operators.

Competition against whom?

Antitrust rules protect both actual and potential competition, raising the question of where we should look for anticompetitive agreements in labour markets.

The upstream level

Companies fight for talent at the upstream level, namely, they compete for it by offering more attractive conditions (remuneration, benefit packages, pension schemes). Companies with different business profiles may compete for the same pool of candidates. For instance, a law firm and a construction company might be equally interested in employing a real estate lawyer although what those firms supply (legal services and construction work) are in no way substitutable for each other.

The downstream level

If an individual operates as a business and cooperates with a company under a B2B contract, they may be a competitor in relation to the company they cooperate with. In the services sector (IT, healthcare, legal, design, etc.), an individual typically has sufficient skills to provide stand-alone service substitutable for those provided by a larger organisation.
Arrangements between a company and an individual engaged under a B2B contract related to price-fixing, market sharing or capping output might be caught by competition law prohibitions.

Non-compete clauses

This is particularly true of non-compete clauses, especially after a contract ends, as they limit an individual's ability to offer services independently. This may lead to market sharing or the capping of output. Such arrangements may be prohibited by Article 101 TFEU or equivalent provisions enshrined in national laws.

De minimis exception

Even anticompetitive agreements can be exempted from Art. 101 TFEU and national competition laws – and thus be permissible under competition law - if they merely have an insignificant market impact.